A Money View of Economics and Finance

The last three or four decades have seen a remarkable evolution in the institutions that comprise the modern monetary system. The financial crisis of 2007-2009 is a wakeup call that we need a similar evolution in the analytical apparatus and theories that we use to understand that system. Produced and sponsored by the Institute for New Economic Thinking, this course is an attempt to begin the process of new economic thinking by reviving and updating some forgotten traditions in monetary thought that have become newly relevant.
Three features of the new system are central.
Most important, the intertwining of previously separate capital markets and money markets has produced a system with new dynamics as well as new vulnerabilities. The financial crisis revealed those vulnerabilities for all to see. The result was two years of desperate innovation by central banking authorities as they tried first this, and then that, in an effort to stem the collapse.
Second, the global character of the crisis has revealed the global character of the system, which is something new in postwar history but not at all new from a longer time perspective. Central bank cooperation was key to stemming the collapse, and the details of that cooperation hint at the outlines of an emerging new international monetary order.
Third, absolutely central to the crisis was the operation of key derivative contracts, most importantly credit default swaps and foreign exchange swaps. Modern money cannot be understood separately from modern finance, nor can modern monetary theory be constructed separately from modern financial theory. That's the reason this course places dealers, in both capital markets and money markets, at the very center of the picture, as profit-seeking suppliers of market liquidity to the new system of market-based credit.

审阅

FY

Excellent explanation of the way money moves the world we live in today. Brilliant professor who's passion and depth of understanding adds to the fascination of the world of money & banking.

GG

Oct 13, 2019

Filled StarFilled StarFilled StarFilled StarFilled Star

Fantastic content, it explains how banks work behind the scenes and many intricacies of the current financial system. Super suggested even to those who don't have a financial background.

从本节课中

Money in the Real World

In this final module, we bring the entire course together. These two lectures build on everything that came before, and show how all the pieces fit together into a unified whole. Specifically, the first lecture uses the conceptual apparatus of the money view to make sense of shadow banking as the quintessential form of banking for the modern financially globalized world. And the second lecture shows how the conceptual apparatus of the money view fits with standard economics view and finance view, by drawing attention to dimensions of the world from which the standard views abstract.

教学方

Perry G Mehrling

脚本

So where does the money view fit into the economics view and the finance view? I think from this perspective that I've been outlining here, we understand what banks do or more generally money dealers do, is they are able to relax the survival constraint for anyone who comes to them. They're able to, but they don't have to. They sell their balance sheet. They sell access to their balance sheet. If you want to roll... If you want to push the day of reckoning off into the future, you're dealing with the banking system. Maybe they will help you. Why might you want to do that? If you made promises to pay today, the dead hand of the past, you made promises and you can't pay, you need a banker to say, "Don't worry about it, pay me tomorrow. I will carry you." So the banker is taking on the liquidity risk that you cannot yourself tolerate. They could say, "I'll carry you and let you live to another day," in which it might be that your plans come through. Or they could say, "No way, you're out of business." Liquidity kills you quick. Similarly, if you come to them with a brand new- a fancy idea for some new app about the future, they could say, "That is such a great idea. We're going to lend you money now. We're going to give you... " You have a liquidity constraint i.e. you need now to make a cash outflow and you don't have any cash inflows yet. We're going to help you do that. Or they could say, "We're not going to help you do that." So this is the point. The banking system has selective control over liquidity allocation. Banking system has selective control over liquidity allocation, who gets spending power and who does not get spending power. That's not just allocation of capital, of saving, because it's about who gets to roll over their debt to another day, who gets to issue a debt in the first place? Who gets the bank to issue that? It's about the issuance of money-like objects; the bank, by endorsing liabilities of other people, makes them into money, makes them into means of payment. This is a tremendous power. The banking system selective control; this is about choosing whether to discipline or elasticity for individuals and for the economy as a whole. The banking system is controlling that. That's where that happens, inside the banking system. And the central bank is a part of that. The central bank can influence that in various ways. So this is where the money view connects up to the things that economics cares about. It cares about investment, or the things that finance cares about, it cares about asset prices. You see that the money view actually connects up with both of those things. Once you see how it works, both the economics and finance have abstracted from money, thinking oh, it's just the oil that greases the wheels of transactions or something. But in doing so, they wound up with theories that are seriously incomplete. And you- and it is not that the money view is somehow contradictory to these theories; it's not. But the present versus- the present determines present point of view is a genuine aspect of our system, and abstracting from it misses important features that cause- have real effects, particularly in crises, we can see it, but even in normal times. We don't see them of we insist on looking at the world through lenses like this or through the Irving Fisher diagram that I had before. So my goal in this class is to at least make another 100 and perhaps those of you watching online 100,000, at least have a possible view into this money view perspective, which has always been a minority point of view and maybe will continue to be a minority point of view. But if you want to understand money markets, it's the point of view you want to be pretty clearly grappling with or at any rate, that's the argument of this course. Thank you.